FNMA and FMCC preferreds. In search of the elusive 10 bagger.

[Luke 532]

@Luke

 

while this is likely the most profitable reorg ever be done, it is also the reorg with the biggest need in new money going forward, so flattening the cap structure is needed here...what drives this is the need to clean things up for the new money; what makes the new money able to be raised is the profitability

 

Good point.

[Guest cherzeca]

In reorgs one flattens the capital structure before one raises new money. Argument is not over what you get (common) but how much you get. That should be the playbook here. As for market hesitancy to buy stock in an issuer in conservatorship,  one thing new money can insist on is conv pref.  Which is why you first flatten the capital structure. Once you have flattened the cap structure then new money conv pref has first claim on >$20b ofcash flow. No banker would say no to a mandate to do that. This is a huge fee mandate.

 

The only exception to this flattening principle is where a reorg doesn’t need new money going forward which is very rare

 

yes. we can only dream of a deal where the sr pref gets taken care of some way and then a ~ $50bn infusion of zero coupon preferred from some big private players in 2020 that takes out the 33bn of jr pref (say at 80pct of par, so only ~25bn of cash needed) and uses the other 25bn to buy out half the govt warrants with the other half retired.  govt wins with up front payment and no lawsuit overhang, jr pref wins to exit this mess, and common's dilution is materially reduced.

 

@IG

 

good god, man.  I just wrote that everyone (jps) goes to common first.  can you read?

 

@Luke

 

while this is likely the most profitable reorg ever be done, it is also the reorg with the biggest need in new money going forward, so flattening the cap structure is needed here...what drives this is the need to clean things up for the new money; what makes the new money able to be raised is the profitability

 

lol.  sorry, I misunderstood and read it poorly.  while I prefer my plan better, ok on yours too.  I just don't see conversion without IPO happening and I don't see a $20bn IPO occurring that leaves $80bn left to raise -- likely need a private infusion first, as mnuchin referenced.

 

sorry that came out harsh. 

 

we all have plans, but anyone working on this recap will be working from a reorg template which has generally worked in the past, which I have tried to describe.  $20B cash flow is highly unusually for a reorg issuer making an offering, which is why I think the market is not as concerned as Layton about buying into a conservatorship...especially if the 5th C en banc comes through.

[Luke 532]

Really weird price action on the $50's today.  Most Fannie's are up, and Freddie's are down (FMCCL, FMCCI).

[Guest cherzeca]

Really weird price action on the $50's today.  Most Fannie's are up, and Freddie's are down (FMCCL, FMCCI).

 

treasury and fhfa will want to recap both GSEs, obviously, but from a new money investor point of view, I would rather put my money into Fannie than Freddie.  whether this translates into a disparate pricing effect I know not

[Cox022]

Would someone mind posting a link to a list of Fannie and Freddie preferreds that trade on the market,including par values?

 

I'm running into roadblocks doing this on my own.  For instance, Fairholme reported owning Freddie Mac Series Z in their 2018 annual report but I can't find the offering/similar documents on the Z series.

 

Thanks!

[muscleman]

Would someone mind posting a link to a list of Fannie and Freddie preferreds that trade on the market,including par values?

 

I'm running into roadblocks doing this on my own.  For instance, Fairholme reported owning Freddie Mac Series Z in their 2018 annual report but I can't find the offering/similar documents on the Z series.

 

Thanks!

 

I use http://www.quantumonline.com/

You can put in the preferred's symbol, and you'll see all the details regarding par value and other things.

I think one of our members posted an excel doc with the complete list of preferreds before. You may dig into this thread to try to find it out.

But personally I'd just trade FNMAT, FMCKJ, FNMAS. They have tight spread and high liquidity. The other ones are pain in the ass to move in and out.

 

 

 

[Guest cherzeca]

in order to appreciate just how profitable Fannie and Freddie are, compare Blackrock, which has more assets under management than FnF combined, and whose profits are less than Freddie's

[Luke 532]

in order to appreciate just how profitable Fannie and Freddie are, compare Blackrock, which has more assets under management than FnF combined, and whose profits are less than Freddie's

 

They are phenomenal companies.  Will be nice once this fiasco is over to go back and reassess their prospects going forward.

[Mephistopheles]

Really weird price action on the $50's today.  Most Fannie's are up, and Freddie's are down (FMCCL, FMCCI).

 

treasury and fhfa will want to recap both GSEs, obviously, but from a new money investor point of view, I would rather put my money into Fannie than Freddie.  whether this translates into a disparate pricing effect I know not

 

Why do you think new money would want Fannie more?

[beaufort]

in order to appreciate just how profitable Fannie and Freddie are, compare Blackrock, which has more assets under management than FnF combined, and whose profits are less than Freddie's

 

They are phenomenal companies.  Will be nice once this fiasco is over to go back and reassess their prospects going forward.

 

I think this is principally why jps holders would push for favourable conversion to common.  Of course I am assuming that the companies will not be gutted (absurd capital levels, etc). 

[Midas79]

Really weird price action on the $50's today.  Most Fannie's are up, and Freddie's are down (FMCCL, FMCCI).

 

treasury and fhfa will want to recap both GSEs, obviously, but from a new money investor point of view, I would rather put my money into Fannie than Freddie.  whether this translates into a disparate pricing effect I know not

 

Why do you think new money would want Fannie more?

 

I would like to know this as well. I was of the opposite opinion for two reasons.

• The CSP should eliminate much of Freddie's competitive disadvantage vis a vis Fannie
  
• Freddie is farther past the 10% moment, so if the Fifth Circuit bases an award on that then Freddie will be closer to being fully recapped than Fannie
  

 

There has been rather little price difference in Fannie's and Freddie's prefs, though Fannie's commons usually trade at a 3-4% premium to Freddie's. The most plausible theory I have heard is that the money flow generally goes FNMA, then FMCC, then FNMAS, then FMCKJ, then to the rest of the prefs.

[Guest cherzeca]

Really weird price action on the $50's today.  Most Fannie's are up, and Freddie's are down (FMCCL, FMCCI).

 

treasury and fhfa will want to recap both GSEs, obviously, but from a new money investor point of view, I would rather put my money into Fannie than Freddie.  whether this translates into a disparate pricing effect I know not

 

Why do you think new money would want Fannie more?

 

Fannie is the bigger company. 

 

edit:

as for getting back some of the beyond 10% moment excess cash, yes that would balance in Freddie's favor

[DRValue]

Really weird price action on the $50's today.  Most Fannie's are up, and Freddie's are down (FMCCL, FMCCI).

 

treasury and fhfa will want to recap both GSEs, obviously, but from a new money investor point of view, I would rather put my money into Fannie than Freddie.  whether this translates into a disparate pricing effect I know not

 

Why do you think new money would want Fannie more?

 

Fannie is the bigger company. 

 

edit:

as for getting back some of the beyond 10% moment excess cash, yes that would balance in Freddie's favor

 

I own mainly Fannie due to size. A bigger book of business means a stable advantage to write more business as the old book runs off, along with a lower marginal cost due to scale.

[allnatural]

@CGasparino

 

SCOOP: Housing chief @MarkCalabria remains committed to ending net-worth sweep recapitalizing @FannieMae @FreddieMac possibly ending NWS by year's end as prelude to public offering-sources. Calabria believes GSEs could issue stock while in conservatorship more now @FoxBusiness

[buffetteer1984]

I think the TA should be flashing buy now  ;)

[Luke 532]

@CGasparino

 

SCOOP: Housing chief @MarkCalabria remains committed to ending net-worth sweep recapitalizing @FannieMae @FreddieMac possibly ending NWS by year's end as prelude to public offering-sources. Calabria believes GSEs could issue stock while in conservatorship more now @FoxBusiness

 

2:40 mark of the video... https://finance.yahoo.com/amphtml/video/fhfa-calabria-wants-massive-public-193717583.html

[orthopa]

Here's a negative way of viewing the situation (playing devils advocate - its increasingly difficult to not add more but position sizing is becoming dumb):

 

I think one of the more likely options is:

-The plan is done (Phillips left) and the govt is waiting for en banc decision.  For this to be the case, the govt plan would have to differ from a reversal decision en banc.  Otherwise - waiting would be a pointless exercise as the plan could simply absorb the changes en banc naturally.  How can this be viewed as anything other than negative?

 

The other two likely alternatives:

- Someone on the inside is a roadblock.  Either Calabria or Kudlow.  Both have spoken favorably towards shareholders in the past but at the same time would wipe us out in a heartbeat.  Both seem to lack a sense of realistic constraints - but nonetheless this presents an issue in moving to the next step.  I think it's unlikely Calabria is the problem - why signal so strongly off the bat? 

- Bankers when pressed to begin working on IPO mechanics expressed hesitation on execution risk - and one way of reducing that risk is to retain earnings and build a buffer for a couple of years + giving congress time to act prior to IPO

 

1.Good thought process here. The one person we have heard NOTHING out of on the whole issue since he was put in place is Kudlow. Could be nothing or something but maybe he is or has been an issue. Apparently the plan gets presented to him via the mandate and he is the "white house" or "administration" as it has been referred to. Calabria was handpicked on purpose, its not him.

 

2. I think the main reason now that I think about it more is the en banc decision. If your going to publish a plan in June and once it gets rolling a court now orders you to throw back another ~20B the optics look bad as you have to modify the plan already. The end banc was announced in Nov 18 and heard late Jan/Feb 19. Otting spoke just before this. Maybe the gov/lawyers didn't like the hearing and that put a wrench in all of the works. Trumps' mandate came in March, then Calabria got to talking favorably in april/may then everything got delayed once June hit.  Its been ~6.5 months since the enbanc? The gov probably figured it would be decided by now but as a result plan cant come out so late august/sept is the guess by the gov then. The plan is written, done, but I bet there are two versions based on enbanc decision.

 

3. Its obviously confirmation bias but why would Calabria say all that he did, and he spilled a lot, if it wasn't true? I think he was talking what he knew/read/discussed. Why would he go and stick his neck out and shoot from the hip if this is all as big of a deal as it is? Like cherzeca has said he was probably told to cool it and back off talking about the plan until the enbanc decision tells the gov which way its going to go.

 

4. I think the 4-5 year timeline is BS. I still think this is closed to getting wrapped up or is well along by Jan of 2021 in regards to capital structure/raises. Why? Because why would you expend this much time/energy/manpower for almost 3 years to let it all go to waste by losing an election you cant control? Think about all the planning this has taken. Paulson supports Trump, Trump makes Mnuchin treasury secretary, Paulson worked with Mnuchin, Mnuchin and Trump invested with Paulson, Paulson is an "economic advisor", Otting is put in place supposedly to act but doesn't. Otting worked with Mnuchin and Paulson on Onewest, Calabaria is conveniently nominated for FHFA, Calabria was Pence's economist, Calabria worked with Mnuchin on trade, etc, etc, etc. Its so god damn obvious what has gone on and will eventually happen. No way this doesn't. 

 

Did Trump run on reforming FnF? Nope he didn't talk about it one god damn time. No one did but his treasury secretary went on live TV the day after he was elected and said it was a priority and would get done during the next 4 years. Where did that come from? Who was he speaking for? Sure as hell wasn't him! Anyone every care to think why Mnuchin and Calabria are so hell bent making this work out and have such strong feelings about this? Because they are nice people and really give a fuck about the 30 yr mortgage and interpreting HERA? No way. This was planned from day one and there is one person behind all of this. That person needs to get paid and if you come this far you finish it and everyone involved makes damn sure it doesn't get fucked up.

 

 

 

[muscleman]

I think the TA should be flashing buy now  ;)

 

I am not going to talk about TA anymore here.

[Luke 532]

1.Good thought process here. The one person we have heard NOTHING out of on the whole issue since he was put in place is Kudlow. Could be nothing or something but maybe he is or has been an issue. Apparently the plan gets presented to him via the mandate and he is the "white house" or "administration" as it has been referred to. Calabria was handpicked on purpose, its not him.

 

I know we're aware of this tweet, and this comment was made before he was part of the Admin, but as a reminder of where he might stand:

[rros]

it appears they -- at a minimum -- created some wiggle room to punt on an initial capital raise until after the election either out of necessity (limited demand based on last 2 months feedback) or preference (avoid a complex issue). 

 

many things can occur going forward good or bad but there will be plenty of current holders who in the mean time aren't going to stick around to find out.

 

good luck, everyone.

We could see a trading bottom today.

 

there's no urgency to buy and plenty of people urgently want out.

It looks like it was the bottom, as per this weekly close. Which topped the 34 weekly ma. Likely, we will regain the 5 monthly ma for the Jrs. FNMAS sits at $11.27 and FMCKJ at $ 11.16 and continue the bullish run started on October last year. Hopefully, nobody has sold their shares.

 

Recent comments by Gasparino on Calabria (thank you, Luke) may indicate the administration is still on the side of shareholders trying to put together the fact that c-ship is hard to terminate (or cannot) while shareholders must be made right. I can totally see the FHFA trying to achieve some kind of co-existence between Treasury (taxpayers) and us, with Treasury agreeing on sharing profits. This looks like a "second attempt". A new twist to throw us a bone.

[Guest cherzeca]

the plan is on Mnuchin's desk and it's waiting for mnuchin to have the time to give it a final blessing.  that's all folks!

[TwoCitiesCapital]

I think the TA should be flashing buy now  ;)

 

Once again, I'm terrible at reducing the position before the big drop, but was diligent in buying more shares at 31%-32% of par today

 

Seems like progress is delayed, but it keeps moving the right direction. We're now talking a timeline for recapitalization and release and have officials on record supporting the concept. A far cry from where we were at in 2013 when I started this position.

[muscleman]

the plan is on Mnuchin's desk and it's waiting for mnuchin to have the time to give it a final blessing.  that's all folks!

 

I don't have high hopes for that. A few of you guys were upset that I was focusing on tweets, whack job Maloni's rumors etc. and you said you would only want to listen to Calabria, Mnuchin etc.

So let's talk about these folks.

Calabria changed his tone from IPO Q1 2020 to hopeful sometime 2020 on June 13th or so. Kudoos to one of our members finding that detail out.

Calabria filed in Collins and changed his position and stated FHFA is consistutional. OK. People here got upset, but a possible twist is that he needs to keep his job if Trump is not re-elected in 2020. But what does that imply? That implies that the current recap and release plan is not going to go as quickly as originally expected.

Then the 2024 talk this week.

 

I think those give some hints on what the current treasury plan looks like.

 

In terms of Collins, I am a complete legal fool, so just read my post for fun.

 

Assuming government has connections to the judges and already know what they are writing, and assuming Calabria wants to get GSE out of conservatorship. I think the second assumption is very high confidence, while the first assumption is lower confidence.

1. Plantiff will win. In this case, Calabria should not have to file the claim that he now believes FHFA is constitutional. He can just relax for another few months, and after the ruling, void NWS, and release Fannie and Freddie.

2. Plantiff will lose. In this case, Calabria is thinking, since the judges are giving them a lose, it is better to also file the claim to make sure FHFA is consistutional, so he can still keep the job until 2024. In that case, he bought more time to achieve his goal.

 

Therefore my guess here is that Collins is a loss for plaintiffs. It seems reasonable if we can assume that the government has connections to the judges and already know what they are writing. If my assumption is wrong, then the above logic is invalid.

 

Question for Chris, how likely do you think that the government already knows what the outcome of Collins will be? Could someone in treasury be talking to the judges, underscoring the importance of housing reform, and demanding that they know in advance what the result will be? I don't see how the treasury plan can be complete without knowing Collins outcome first, do you?

[Guest cherzeca]

"Question for Chris, how likely do you think that the government already knows what the outcome of Collins will be? Could someone in treasury be talking to the judges, underscoring the importance of housing reform, and demanding that they know in advance what the result will be? I don't see how the treasury plan can be complete without knowing Collins outcome first, do you?

 

I have posted on this.  I think it possible that the parties have inquired as to timing of the release of a decision.  what if anything they were told is impossible to say. a P win in collins just means that a SCOTUS decision will occur in 2020 if the parties dont settle.  the decision could be stayed pending appeal and the NWS could go on, but it looks a lot better for a re-IPO to have at least one circuit court rule against NWS.  I dont think the delay is attributable to collins though.  mnuchin wont be able to sign off until the debt/budget deal is done...unless another crisis emerges

[hardincap]

at the risk of stating the obvious, cancelling the NWS and senior prefs is much more important than timing of the exit. calabria/mnuchin may have disappointed on timing, but  so far they (or at least calabria) have been very very consistent on letting the entities rebuild capital. as soon as that starts, prefs should recover to 60-75% par. there are too many variables to be confident about 90%+ par recovery in the short term, imo. but thats okay, 60-75% par is still great in my book, especially considering my cost basis is <15% par. and thats what MOS is all about. sometimes you gotta tune out the noise and keep it simple.